Thursday, I met with one of Cyanogen’s founders, Kirt McMaster, who serves as CEO, along with the company’s head of global partnerships and distribution, Vikram Natarajan, in a cramped office room at the Mobile World Congress.

Unlike Firefox and other initiatives, the company did not have a formal booth.

Cyanogen, first of all, is not a fork of Android, contrary to how I previously characterized it. Both gentlemen were emphatic on that point, and they point out Cyanogen complies with the “CTS,” the compatability test suite that Android enforces to maintain compatibility.

It is a valid version of Android, if you will, which has been “modded” to provide a different read-only memory (ROM) that device makers can install when they ship their phones.

McMaster has a habit of leaning into his statements, rising in volume as he lays out his case, or pointing his finger at you to drive home the matter. Natarajan will intrude calmly, after several of McMaster’s forceful pontifications, to add a point of detail, or to explain something with a particular piece of data.

Together, they have an intriguing way of conveying the passion and the practice of this new venture.

Their overarching point is that device makers and services are captive to Google’s dominance of the platform with the Google offerings — Google Drive, Google Play, Google+, etc. — which come with deep hooks into the operating system, hooks you can’t get as a third party.

Some companies have tried to get around that with their own brands of phones, to disastrous results.

“We want an open platform that will prevent abominations like the Facebook (FB) Phone,” says McMaster of the social network’s failed initiative two years ago with HTC (2498TW) on the “HTC First” handset that carried “Facebook Home.”

“No one wants a Facebook phone or a Spotify phone, they just want that total transparency,” he says.

“Oh, the Fire Phone,” says McMaster with a sigh of disgust, not just rolling his eyes but swiveling his head around his shoulders in a kind of gesture of exhaustion.

People don’t want these home-brew devices, he insists, what they want is freedom from Google’s complete dominance of the services layer of every Android device:

Even with the apps model, on iOS, only the guys who own the OS have the full, deep integration. And it’s the same for Android. The OS is a shell for the incumbent. And as you go down the line, the incumbent’s services fall off, relative to what others can bring to the table. Google Drive? Not as good as Dropbox. Google Play Music? Not as good as Spotify.

The company already did one phone deal, last year, with OnePlus, and its latest model is with India’s Micromax Informatics Ltd.

Natarajan pulls out a black phablet-looking device, the Micromax model. It looks like a decent Android smartphone. It runs an “octa-core” part from MediaTek (2454TW).

At $140, unlocked, Says McMaster, “For all intents and purposes, for an average individual who’s not caught up in some tech bubble, if you gave them this, and an iPhone, they couldn’t tell the difference.”

Cyanogen has received $30 million in funding from Benchmark Capital, Andreessen Horowitz, and others, in two rounds. The implication is that a gigantic round of funding is on the way.

At one moment in the conversation, referring to Xiaomi, the Chinese smartphone giant, which has built its own software on top of Cyanogen, McMaster notes “they’ve gotten $3.5 billion in funding, and have 3,000 employees, we’ve got $110 million and we’ve got 85 employees.”

McMaster’s point is about riding the growth of nonstandard Android. Here, Natarajan jumps back in, noting that because Cyanogen passes the CTS test, unlike Firefox, Jolla’s SailfishOS, and Linux distributions such as Ubuntu, Cyanogen can take advantage of the infrastructure that Android has created.

“We support over 190 devices in 70 countries,” he notes. “We can scale across OEMs and services.”

“By not forking Android, we get all the benefits of the ecosystem, unlike the rest. The entire ARM core, and test infrastructure, of every phone license is open to us.”

Says McMaster, “Android is like Linux, it’s the plumbing on which you build something.”

What they can build is an empire of the Micromaxes of the world. MediaTek and Qualcomm (QCOM), the two biggest merchant suppliers for phone chips, are each doing more and more to arm the smaller players with everything they need to crank-out low-cost phones. Cyanogen announced a partnership with Qualcomm here at the show this week.

By working closely with the smaller vendors, Cyanogen gets to ride along with the vendors who understand the emerging markets where growth in mobile is exploding:

The new turnkey model from Qualcomm and MediaTek means these guys can very rapidly evolve to get the right phones into markets. Qualcomm has been very good to augment what they had with the QRD [Qualcomm Reference Design] a few years ago. If you can ship phones in 90 to 120 days, you have taken the black magic out of it. Micromax, Lava — the local champions know their markets better than anyone else. You just look at what’s happening in some of these markets. In Africa? The whole selfie thing is huge in Africa, bigger than in the U.S. They [smaller vendors] are all taking share from the big guys. Our volume this year in India will be higher than Xiaomi’s! A lot of the growth is coming from emerging markets, and those people aren’t naive, they know how to buy. In three to four years, you will have a device that’s $50 and can do anything you want.

The vision for a company came to McMaster one night after the gym, as the state of affairs of Android mixed in his mind with things he had already worked on at a project at Sony (SNE).

Steve Kondik, an Android legend, had already started Cyanogen as an open-source project, and it was attracting a loyal following. Cyanogen offered a way to quickly load the latest Android builds onto phones when the phone maker itself wouldn’t make the effort for months, if ever.

Lots of older devices were being saved from obsolescence by Kondik’s software, and one night it struck McMaster:

I was primarily an iOS guy. iPhone was my primary mobile device for years, I’d never used Android as my primary device until the Galaxy S3 came out in the summer of 2012. Jelly Bean [the latest Android release of the time] came out, and it was finally at parity with iOS, and I felt with Google Now, which launched with that there were some things that were more compelling, and then the big screen was compelling. But Samsung didn’t put Jelly Bean on the S3 immediately. It took them six to seven months. But 30 days after the S3 came out, Cyanogen had Jelly Bean out. I flashed it on the S3, and it was off to the races. What drove me to create a company was, I had been using Cyanogen for 3 months, I was at the gym, and it was night, and I had an epiphany. I had been at Sony and we were working on this device that would be integrating consumer Web services. I always felt that that could be the holy grail of mobile devices. I thought to myself that if you could create an OS that would let other parties hook into it, you could flash a device, and it is like Neo in the Matrix, you are fucking hacking the system! Ultimately, we are building a platform that allows any service to have as deep integration into the system as Google or Apple, and in a seamless fashion.

McMaster sent Kondik, who was at Samsung at the time, an email, the two met up in Seattle, and hit it off, says McMaster. At McMaster’s suggestion, Kondik apparently showed no reluctance to quit a good job to start something new.

McMaster draws inspiration from the example of another startup, Danger Inc., which had the wildly popular “Hiptop,” or “Sidekick,” a decade ago:

The thing with Danger was, on T-Mobile in the U.S., they had AOL Instant Messenger integrated, and it was fantastic. And it was just a fraction of T-Mobile’s device revenue, but it had one third of all AOL messaging traffic.

It was a lesson that services can draw wildly enthusiastic support from users when they are well integrated.

Should Google be concerned? I ask, and, even more so, should Cyanogen be concerned that Google might become so concerned that they might revoke or change terms of the Android license to destroy what Cyanogen is building?

Says McMaster, “Google should be very concerned about others rising to similar levels of potency as they have.”

But, he and Natarajan both note, “Google are under anti-trust scrutiny with regulators, so they are being very careful.”

On the positive side, Google’s willing to be practical about the world, both gentlemen note.

“Google supports a very large non-CTS platform already, called iOS,” says Natarajan. “They love things that get scale.”

Natarajan notes, “One thing that is interesting to us is that Android today is at 1.5 billion devices, going to 5 billion in the next several years. And 30% of that is non-Google Android.”

“We see that going to 50% in five years,” meaning, it’s just a fact there’ll be more “other” even within Google’s ecosystem.

Asked how they make money, McMaster describes the software being used by Micromax and others that want greater control, and by services providers — companies like Spotify or Dropbox — whom he’s currently signing up. He won’t yet disclose those services providers, but says to look for “some really big stuff” in the next couple of quarters.

McMaster hopes to get paid at the nexus of both constituencies, vendors and services providers, though the description of how that works is a bit vague.

“We haven’t made any money yet,” he readily admits, “that comes later this year.”

Mostly, though, McMaster seems fairly passionate in his belief that “The best innovations are created by people who are outside these big corporations.”

Part of protecting the business is having a sliver of Cyanogen, the part where services hook in, be its own proprietary layer of code on top of open source. Cyanogen has even hired the former chief counsel for Android, Frank Montes, as its general counsel.

Is it possible that with some proprietary code, Cyanogen itself could become one of those “Big Corporations,” the next Google, in a bad sense?

“We often get asked the question,” he says, “Of could we just create another monster here? We would like to think we are more like Switzerland, where we just give these guys hooks into the system.”

Still, I point out, there’s the best of intentions, and there’s reality. “Don’t be evil, right?” I ask, the famous Google corporate tag line. “That didn’t necessarily work so well…”

A staffer happens to have opened a Web page to show me the new logo Cyanogen has just come out with.

But McMaster, still musing about what it all means, is impatient to return to the heart of the discussion.

“New web site, new logo, blah, blah, blah,” he says. He wraps up our discussion by launching into a breathtaking reflection on what does matter, at least to him.

“Computing is intertwined with the evolution of the species,” says McMaster. “It is part of the evolution of the organism.”

“There is a fundamental evolution of our species that is taking place. There is one overarching mind that interferes with the negative aspects of ourselves. When you look at a company, there’s nothing wrong with making money. But you have to project out to what does it mean to us? You have to make a buck, yes, but you also have to ask what it all means.”

Shares of Google (GOOGL) are down $4.81, or 0.8%, at $576.62, declining with the broader market despite getting a thumbs-up this morning from Citigroup’s Mark May, who reiterated a Buy rating and raised his price target to $682 from $629, writing that concerns about the company are “overblown.”

Writes May, “Google has become an enigma among investors as it arguably remains among the most important companies in TMT and its valuation remains reasonable, yet sentiment has soured as investors question its competitive position.”

May then digs into six issues for Google: the health of search; whether they should return capital (he likes the dividend idea); the valuation; the profit margin outlook; risk of being booted from Apple‘s (AAPL) Safari mobile browser; the threat from Facebook (FB).

On the matter of search, May sees Google making the best of its situation by having instituted “product-listing ads,” or PLAs, which have kept prices rising for desktop ads, offsetting flat traffic from desktop users:

Per data from RKG, desktop’s share of clicks has declined by 19% since 4Q12, while the share of spend has only declined by 14% (see Figure 8 below). This widening delta between desktop’s share of spend and share of clicks implies that in recent years improving desktop CPCs have been an important driver of growth in search spend. This is clearly evident given that desktop click growth has been basically flat in the U.S. in 2013 and 2014 (see Figure 8), while Google’s desktop search revenue has continued to grow. We believe this is due in large part to a higher percentage of desktop clicks coming from PLAs, which monetize at higher rates than standard text ads.

For mobile, where Google’s revenue rose 51% in 2014, he sees new opportunities such as taking a share of mobile application installations:

The most near-term opportunity, in our view, is for Google and other search players to take share of the mobile app install advertising market. Mobile app installs have been a key component of Facebook’s success on mobile; we estimated that this was over a $1.5bn business for the company in 2014. Google very recently entered this market, announcing on 2/26 that it will begin serving ads in its Google Play app store. Given the size of Google Play, with 46bn estimated app downloads in 2014, we see a revenue opportunity of over $2.5bn for Google.

On the point of capital returns, he thinks most investors think that’s the most important thing to get the stock moving after a 6% decline the last 12 months: “While the shares screen between attractive and fair for most investors, the most common question is ‘what is the catalyst’ to change sentiment and re-rate the shares. The most common response is a return of capital.”

May thinks a buyback is not the best idea, but rather a dividend or a large M&A deal:

While some investors have expressed a desire for Google to repurchase shares at scale, our analysis suggest that that could result in limited upside in the equity value (i.e., our price target, or the intrinsic value of the equity). As shown in Figure 17 below, we estimate that a $10 billion share repurchase would result in less than a 1% upside in intrinsic equity value. We believe that a better use of cash would be for large strategic M&A (see next section) – an area where Google has had great success historically – and/or to institute a 1-2% dividend. The dividend could comfortably be funded with annual excess FCF from operations, would put the company more in-line on a capital return basis with its large tech peers, and potentially help to bring in new classes of investors [...] While we hear it brought up far less than the return of capital, we believe another potential positive catalyst for Google this year could be another form of capital allocation – the use of its cash to complete a large strategic acquisition. We believe targets that ‘check boxes’ such as 1) improving its competitive position in mobile, 2) moving the ball forward on Nest/iOT initiatives, and 3) capitalizing on the video and video advertising opportunity (i.e., brand advertising) would be viewed positively by investors. Part of our reasoning is due to Google’s long track record of executing well with large, strategic acquisitions (e.g., DoubleClick, YouTube, Droid, etc.).

As far as Apple’s Safari browser, there’s $4 billion at risk for Google, May estimates, assuming it is paying 45% “traffic acquisition cost” to Apple.

May thinks the chances are greater than 50% that Google will lose the default position in Safari, but he also thinks losing it wouldn’t be so bad if enough people switch back, because Google would pay a much lower 5% TAC to Apple:

Given this disparity in TAC rates, we think that if enough iOS users were to switch their default search engine back to Google, it’s possible that a loss of default status could in fact prove to be accretive to Google’s net revenue. Assuming a current 45% TAC rate, we think the necessary switch-back ratio to create revenue accretion would be approximately 58%. Per the sensitivity analysis in Figures 28 & 29 above, if the TAC rate Google currently pays Apple is higher than our assumed 45%, the required switch-back ratio for Net Revenue accretion would be lower. That said, we do not believe Google’s TAC rate on the Apple Safari deal can be greater than 60% based on the total Website TAC payments reported and the likely gross revenue from this source. As far as the Facebook threat, May concedes that Facebook’s use of people’s profiles “does out-perform cookie-based approaches” used by Google.

May offes an infographic of the two companies’ ad technology assets:

Despite the real threat of Facebook, May points out Google continues to refine its own business, and also that many advertisers, having taken a long time to standardize on Google, will take a long time to move, if at all:

In attempting to consider what is at stake for Google in the event Facebook is able to leverage its people-based data and platform, we focus on Google’s third-party or network advertising business as well as its adtech-related revenues. As shown in Figure 33 below, we estimate that Google generates roughly $12 billion a year in gross revenue and ~$4 billion in net revenue (or ~6% of total company net revenue) from these third-party ad services and adtech solutions. Importantly, as mentioned above, we believe that 1) Google is not sitting idle and has the assets and potential to respond to and address these new opportunities in ad targeting, and 2) the transition, if any, by advertiser and agency customers is likely to be a relatively longer process than what we’re accustomed to with typical Internet ad spend as these customers have spent a lot of money and time standardizing on Google stack for many years. That said, we are not under-estimating the potential risk to Google longer term.

Research firm Strategy Analyticsthis morning reported that Apple’s (AAPL) iPhone took 89% of all smartphone profits in Q4 of 2014, up from 71% a year earlier, while devices running Google‘s(GOOGL) Android software plunged from 29.5% in Q3 of 2013 to just 11.3%.

Total smartphone operating profit was up 31%, year over year, at $21.2 billion, said the firm.

Strategy Analytics analyst Neil Mawston posited that Google’s in trouble if its partners can’t make money:

Apple iOS continues to tighten its grip on the smartphone industry. Apple’s strategy of premium products and lean logistics is proving hugely profitable. Android’s weak profitability for its hardware partners will worry Google. If major smartphone manufacturers, like Samsung or Huawei, cannot make decent profits from the Android ecosystem, they may be tempted in the future to look at alternative platforms such as Microsoft, Tizen or Firefox.

Research firm IDC this afternoon announced results for smartphone market share consistent with reports in January that Apple (AAPL) retook share from Google’s (GOOGL) Android thanks to the success of the iPhone 6.

Out of 1.3% billion smartphones shipped globally in 2014, says IDC, 81.5% ran Google’s Android, while 14.8% ran Apple’s iOS operating system. Those share numbers were an increase for Google for the year of 2.8 percentage points, a decline for Apple of three-tenths of a point.

However, in Q4, Apple’s share rose from 17.5% to 19.7%, while Google’s slipped from 78.2% to 76.6%. Those numbers are similar to data released in late January by Strategy Analytics.

IDC analyst Melissa Chau writes that the bigger picture was how iOS and Android, combined, increased their overall dominance of smartphone operating systems to 96.3% in Q4 from 95.6% in the year-earlier quarter. The two further shut out competing efforts such as BlackBerry (BBRY) and Microsoft (MSFT):

What will bear close observation is how the two operating systems fare in 2015 and beyond […] Instead of a battle for the third ecosystem after Android and iOS, 2014 instead yielded skirmishes, with Windows Phone edging out BlackBerry, Firefox, Sailfish and the rest, but without any of these platforms making the kind of gains needed to challenge the top two […] This isn’t to say that vendors aren’t making moves, especially for the growth segments – the low-end markets. With Microsoft bringing ever-cheaper Lumia into play and Tizen finally getting launched to India early this year, there is still a hunger to chip away at Android’s dominance.

BlackBerry’s share slipped to 0.4% of shipments in Q4, IDC believes, down from 0.6% a year earlier, while Microsoft’s Windows Phone operating system was at 2.8%, down from 3%.

Apple’s Apple Watch, in stainless steel with a “Milanese loop” band, at its unveiling in September. The device comes out in April.

Trip Chowdhry of Global Equities Research today weighs in on Apple’s (AAPL) forthcoming wearable, Apple Watch, with another missive culling his observations of the developer perspective on the device.

Chowdhry writes that he and staff have attended six “Apple Watch-Kit hackathons” over “the past few months,” and writes that the company may have 100,000 applications ready for the device when it comes out in April.

Chowdhry makes the rather eye-opening claim that “The $350 price of Apple Watch appears to be a non-issue” because “On an average an Apple Watch user will have 100 Apps installed, and one way to think about it is that the consumer is getting 100 devices for $350 ..i.e. $3.50 per device.”

Chowdhry makes one of the largest pitches for the sales of the device thus far, predicting Apple may sell as many as 42 million by December, arguing that “Since Apple Watch extends iPhone functionality and provides user convenience with ‘Glance’ and ‘Notifications’ to an iPhone User, almost every current iPhone user, which are about 350 million users, will also be an Apple Watch user.”

Chowdhry argues that the watch should not be thought of in terms of a “killer app”:

There are about 1.25 million Apps on Apple App Store and about 400 million total iOS users worldwide. Different people have different killer Applications for their devices. For some it is the games, for others it is the social messaging, or it is the navigation, or it is the music, or it is video, or it is email …and so on and so forth. Debating on “what is the killer app for the device” is passe’ – somewhat of pre-year-2007 thinking, when the killer App used to be “Ringtones”. Thinking of Apple Watch from the Watch perspective is also fundamentally flawed: The best Watch on the market is probably a 3 App Device – it tells time, may be Day (Monday, Tuesday etc.), it may also have a stop watch…thats it! By April 10’2015, we are expecting 100,000 Apple Watch Apps on AppStore. Currently, on an average there are 65 Apps per iPhone. We are estimating that an average Apple Watch will have 100 Apps per Apple Watch. There will be no single killer app for Apple Watch – each user will have their own set of Killer Apps…one way to think is that the consumer is getting 100 different devices in one Apple Watch.

Chowdhry also thinks that Apple’s WatchKit programming environment is better than the tools available for Google‘s (GOOGL) “Google Wear” software, though he probably means to refer to “Android Wear“:

Apple WatchKit is extremely well engineered, and the framework is strictly sandboxed, which dramatically reduces developer errors, that could drain battery life. Android framework is very open and lose and hence prone to numerous developer errors. Apple WatchKit App can transparently access the Web via Watchkit Extensions that is running on iPhone. Android Wear requires a complex manual implementation of a proxy service that would connect through the bluetooth. Every aspect of Apple Watch is extremely well thought-off and seamlessly integrated – right from Software development tools, to AppStore, to the Design of the Apple Watch itself. Google Android Wear seems quite disconnected and haphazard in implementation.

Apple shares today are up $3.50, or 2.7%, at $133, hitting a new all-time high.

Citigroup’s Jim Suva late yesterday reiterated a Buy rating on shares of Apple (AAPL), and a $135 price target, writing about the “five reasons it can trade higher.”

Apple shares today are up 18 cents at $128.90.

The five reasons, in sum, are the speed-up in people’s upgrades of their devices, a low valuation, gross margin set to go higher permanently, the promise of Apple Pay and the company’s Passbook, the company’s prospects to make progress in enterprise, and, as a bonus sixth reason, the Apple Watch.

Here are some snippets:

Device Acceleration. Wireless carrier behavior has been changing to allow consumers to upgrade their cell phones before the expiration of standard contracts. This makes it easier for consumers to upgrade their iPhone to the newest iPhone rather than waiting 2+ years for an upgrade. We note, C4Q14 shipments of 74.5 mln units represents 20-25% of iPhone installed base at the end of the June – September quarter and less than 5% of the total smartphone subscriber base of 2.2 bln subscribers, implying continued momentum is likely in the months ahead.

Attractive Valuation. We note AAPL trades at 15x P/E (12x on an adjusted net cash basis, given 20% of market cap in cash). This compares with 16.6x for the SP500 and a median of 12-13x for IT Hardware peer group and 18x for GOOG. We expect AAPL to announce an increase in its share buyback program to $120 bln (from $90 bln currently) to be used year end 2016, as well as a dividend increase.

Gross Margins Permanent Step Up Higher. We believe the increased usage of apps coupled with higher quality of camera resolution for photos and video will cause consumers to permanently shift their preference to higher memory in their smartphone despite the higher costs (average selling price of higher memory phones is $100 incremental but cost of the added memory is only $20 so an 80% incremental gross margin on higher memory configuration).

Apple Pay Plus Passbook. Recently, additional announcements lend further support to our view that Apple Pay/Passbook can truly allow for innovation: 1) Iowa and Delaware are looking at digital driver’s license (while not limited to iPhone we note enabling digital identification methods is likely to lead to increased mobile wallet adoption) and 2) iPhone users can use Apple Pay for federal services (initially paying at National Parks and later for social services, veterans pensions etc.) and 3) Starwood Hotels to enable guests at two of its US locations to use their smartphone as a virtual key with plans to roll out internationally if the pilot is successful.

Enterprise Opportunity. Specifically we see the new relationship with IBM (summer of 2014) to build mobile enterprise applications as early efforts into what we believe could at some point down the road become an enterprise grade mobile solution which not only will help drive future hardware sales but also increase user stickiness coupled with the potential for future revenue streams (iCloud, Services, Apps, etc.).

Apple Watch. The reason we view Apple Watch as a bonus potential catalyst is we are not impressed with the speculated one day battery life or lack of built-in GPS and look for Apple to make enhancements to eventually address these concerns, albeit likely in the second generation of Apple Watch. Accordingly we view Apple Watch 1 as a launch into a new product category which provides bonus upside. We note our model assumes AAPL will sell 7 mln units in FY15 (which ends in September 2015) and this represents 2% of the average iOS installed base in the 12 months preceding its April debut. This compares with 7 mln units of the iPad which were sold in the first six months back in April – September 2010 post its launch, albeit a much smaller iOS installed base.

Another day, another price target increase on Apple (AAPL), this one from UBS’s Steve Milunovich, who reiterates a Buy rating and raises his target to $150 from $130, writing that “Although Apple the device company took the market cap to $700bn, Apple the platform company may take it to $1tn.”

Citing remarks from writer Ben Thompson, Milunovich writes that the “platform” and “ecosystem” of Apple’s iOS software is becoming more important to a “seamless” experience for users across devices, “What we would liken to a Hotel California from which users don’t want to check out,” writes Milunovich.

“Hotel Apple could be more influential than was Motel Wintel.”

iPhone, and the forthcoming Apple Watch, are lynchpins, writes Milunovich:

At the center of this universe sits the iPhone. Apple’s willingness to protect consumer privacy (customers are not the product) combined with Touch ID as the skeleton key of security could be advantages. The Watch may appear to be a subservient appendage to the phone at first, but it could become conveniently germane for payments and other services. Although Apple hardware is tightly integrated, the company is more proficient at creating partnership, providing the gravity in the Appleverse.

Milunovich argues there’s support for his price target based on the discount to the market:

At $150, Apple’s P/E would be 16.5x or 13.3x ex- cash, a 5% discount to the market. Compared with the major peak in Sep 2012, the discount to the market multiple is greater now, the buyback and dividend offer a 6% shareholder yield vs zero then, and more analysts are cautious today.

UBS’s Steve Milunovich today reiterates a Buy rating on shares of Apple (AAPL), and a $130 price target, after parsing words of CEO Tim Cook at the Goldman Sachs technology conference in San Francisco yesterday.

Milunovich notes that when Cook was asked about being up against “the law of large numbers” as far as growth, given Apple’s size, “Cook said (1) Apple doesn’t believe in the law as Jobs taught not to put limits on thinking (our sense is he thinks the smartphone market is not saturated), and (2) Apple focuses on the things that produce the numbers, most important making great products.”

Here’s the exchange yesterday between Goldman president Gary Cohn and Cook:

Cohn: So, you just reported your strongest holiday quarter ever. Stock’s up over 48% since the start of 2014, not including today’s move. So far, Apple seems fairly undeterred by the law of large numbers.

Cook: Maybe the most important answer to that, first, would be that we don’t believe in such as laws as law of large numbers. This is sort of old dogma I think that was cooked up by somebody. And Steve did a lot of things for us for many years. But, one of the things he ingrained in us that putting limits on your thinking are never good. And so, we’re actually not focused on the numbers. We’re focused on the things that produce the numbers, right? And so, if you look at accomplishments over last year, we’re a product company. And our most important thing is to make great products. And we feel great about how we did last year. We came out with iOS 8, was absolutely our largest release since the App Store was created.

Overall, Milunovich is pleased with the nature of Cook’s responses:

Cook seems able to separate the important from the unimportant or blocking out the noise, as he puts it. His focus is on people, strategy, and execution. Take care of those three and the rest takes care of itself. He also showed Apple’s corporate conscience. The company has entered into an $850mn power purchase agreement with First Solar to buy electricity at below grid prices in California. He also said the company would not gather consumer behavior through Apple Pay. Protecting privacy might be a competitive advantage in trust though retailers want that data (and some consumers might want them to have it), which could limit merchant acceptance.

UBS’s Steve Milunovich today reiterates a Buy rating on shares of Apple (AAPL) and a $130 price target, writing that ”perhaps there is upside potential” to the company’s alliance for business sales with International Business Machines (IBM) “given the importance of mobile to IBM and enterprise to Apple.”

Writes Milunovich, without citing sources, he has heard Apple and IBM will expand their offering of software more broadly to enterprise beyond initial vertical applications:

Cook said that over a dozen enterprises have signed on as foundation customers with IBM talking to an additional 130 potential clients regarding MobileFirst for iOS. The first ten apps were for verticals, such as banking (Trusted Advice, Advise & Grow), retail (Sales Assist, Pick & Pack), and airlines (Plan Flight, Passenger+) with over 100 industry apps coming. Now we hear that IBM will be adding horizontal apps as well over time, such as supply chain capabilities. IBM has been backing into applications through its SaaS acquisitions and analytics expertise; this could be powerful.

Furthermore, Apple is driving the bus in this deal, he writes:

Our checks also indicate that Apple is dictating the terms of customer engagement. IBM sales people are only to have Macs with them running Keynote presentations developed by Apple. This partnership probably has more teeth than most given the one time competitors are highly complementary today and have opposite strengths. Will the speculated 13″ iPad Pro play into the enterprise push?

Apple stock today is up two cents at $118.96, while IBM stock is unchanged at $156.72.

Intel (INTC) CFO Stacy Smith showed up at Barron’s offices and talked about a number of issues with myself and editors. Among those was his strong feeling that the Obama administration proposal for repatriation of corporate overseas earnings doesn’t do enough. More from Smith in a later post.

The new Net Neutrality

In other regulatory matters, Federal Communications Commission chairman Tom Wheelertoday penned a piece in Wired stating that it is time to settle the question of “net neutrality,” and that to do so, he will propose new rules, using the FCC’s “Title II” authority, that he said will “ban paid prioritization, and the blocking and throttling of lawful content and services.”

Wheeler said the new rules will not impose rate regulation on carriers. Shares of most U.S. operators were rising in today’s session. Comcast (CMCSA) stock is up $1.50, or 2.7%, at $56.91, while Verizon Communications (VZ) is up 2 cents at $47.85.

Among early responses, R.W. Baird analyst William Power writes that “Given worst-case concerns, we view this plan as directionally positive for wired broadband providers.”

“For wireless providers, we don’t expect the rules to have meaningfully negative impacts today, though they could impact planned future business initiatives.”

Apple supply chain hopscotch

Apple (AAPL) stock is up $1.38, or 1.2%, at $120.04, crossing its all time high of $120. The company apparently has chosen Samsung Electronics (005930KS) to make its next custom microprocessor for its iOS devices, passing up Taiwan Semiconductor Manufacturing (TSM), according to a report by Re/Code’s Dawn Chmielewski and Ina Fried, citing multiple unnamed sources.

However, DigiTimes‘s Josephine Lien and Jessie Shenthis morning report that although Samsung has stolen back the biz for the “A9” processor, TSM aims to win back Apple for the next generation, “A10,” with a new technology called “integrated fan-out (InFO) wafer-level packaging (WLP),” or InFO-WLP.

In another DigiTimes piece, Aaron Lee and Steven Shenwrite that unnamed sources in Taiwan’s supply chain tell them Apple’s Mac computer shipments are set to rise by 10% to 15% this year, to 20 million to 23 million units, outperforming the broader PC market once again.

Amongst other Apple chatter today, Jon Fingas of EngadgetnotesCBS and other outlets reporting a minivan driving around the San Francisco Bay area with lots of cameras strapped to its roof, which is registered to Apple, and which could be some sort of effort to test a driverless car.

And The Verge‘s Micah Singletonreports that the company is using last year’s acquisition of BeatsMusic to build a new streaming music service. Shares of music streaming service Pandora Media (P) are up 91 cents, or 5%, at $18.32.

Face-off on Stratasys

Shares of 3-D printer maker Stratasys (SSYS) are up 33 cents, or 0.6%, at $57.69, recovering from yesterday’s heavy sell-off following a disappointing pre-announcement Monday. Gabelli & Co.’s Hendi Susantoraised his rating this morning to Buy from Hold, arguing for compelling valuation in the shares, while Stifel Nicolaus’s Patrick Newton went the opposite way, cutting to Hold, arguing the prospect of profit leverage has now vanished for the foreseeable future.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.